A Sovereign Wealth Fund is One Policy Idea Biden and Trump Agree On

President Joe Biden and former President Donald Trump, the Republican candidate in the 2024 election, disagree on many points about how to run the economy, but they have at least one idea in common: the U.S. should create a sovereign wealth fund.

Bloomberg reported last week that Biden’s economic advisors are drawing up plans to create such a fund. Earlier last week, Trump gave a speech proposing creating one alongside other economic policies. If either proposal becomes a reality, the U.S. would join countries, including Norway, Canada, and China, that hold a portion of their national wealth in income-generating assets.

What is a Sovereign Wealth Fund?

In essence, a sovereign wealth fund is a state-owned investment fund. For example, Norway’s $1.7 trillion sovereign wealth fund invests the revenues from the country’s oil and gas industry in financial markets, including stock in foreign companies, and uses some of the investment income to fund about a fifth of the government’s budget.

Other resource-rich countries, including Kuwait and the United Arab Emirates, have similar funds. China also has a sovereign wealth fund, which it invests in markets outside the country.

Such a fund would be a first for the U.S. at a national level. Alaska’s permanent fund is an example of a state-level fund. It takes the royalties the state collects from oil drilling and mining, invests them, and returns a dividend to taxpayers.

Why Would the U.S. Start a Sovereign Wealth Fund?

Advocates of creating a permanent fund at the national level have proposed all sorts of uses for the income such a fund would create: it could be used to solve inequality, fund the Social Security program, or, as Trump proposed, invest in “great national endeavors.”

Some economists are skeptical whether such a fund makes sense for the U.S. To be sure, sovereign wealth funds may benefit economies heavily dependent on resource extraction. The funds work for those economies because they provide a way to use surplus income to diversify those economies—preventing a plunge in oil prices from crushing the Saudi economy, for example.

But the U.S., which has one of the largest and most diverse economies in the world, doesn’t have that same vulnerability. And then there’s the issue of how to fund it—the U.S. government has a budget deficit, not a surplus.

As Douglas Holtz-Eakin, an economist and president of the right-leaning American Action Forum think tank put it in a recent blog post:

“How would we acquire one such magical sovereign wealth fund? The only way would be to levy taxes, not spend the money, and build the fund. I don’t know if anyone has noticed, but the federal government does levy taxes, but not as much as it does spend money, and has only accumulated debt in the process.”

Still, sovereign wealth funds have become increasingly popular in recent years. As of 2022, there were 176 such funds in the world with more than $11 trillion invested, up from just over $1 trillion two decades before, according to a study by the National Institutes of Health. The U.S. may end up jumping on the bandwagon. 

“Other countries have wealth funds,” Trump said last week in a speech to the National Economic Club of New York. “We have nothing.”